Xcavate W3F Grant Application Phase 2 #2054
Closed
Conversation
This file contains bidirectional Unicode text that may be interpreted or compiled differently than what appears below. To review, open the file in an editor that reveals hidden Unicode characters.
Learn more about bidirectional Unicode characters
hosted images on our server
correction to image URLs
hosted elsewhere
hosted elsewhere
hosted elsewhere
hosted elsewhere
Reduced scope of work to focus on onboarding the project in to the Polkadot eco system
Hopefully addressing the questions / issues raised
requested to move file to applications folder
old project submission
Revised W3F grant to only focus on building a PoC of the lending protocol dApp
Revised application... more details and new dev team added
Added new member of the team
added another team member
added current symbol to milestone fund request + moved the milestone deliverables inline with template. updated one team members linkedin and full name.
Adapt grant application to focus on ink! contract use case
Removed one member and added a new member
Amended grant application - remove two deliverables
Removed the following deliverables: | 5. | Verification pallet | * We need to remove this deliverable because it is reliant on the Acurast Oracle Pallet which is struggling due to Substrate dependency issues | | 7. | Decentralized Developer Loan dApp / Front End Repo | We are struggling to interact through the frontend dApp so wish to remove this as a deliverable, however interacting through polkadot.js is fine. |
Submission of Milestone 2 grant application
|
Hi Seraya,
The lending protocol is not based on mortgages… it’s based on funding construction costs for a real estate development.
An example would be a real estate developer who owns a plot of land with planning permission for 9 apartments. Say they need to borrow £1,000,000 to build the finished properties. Typically the land would be worth around £1,000,000 (which would be used as collateral against the loan).
Then each apartment might cost £333,333 each when completed… so a GDV (gross development value) of £3,000,000
The real estate developer would fill out a loan application, which would be voted on by a loan committee (which are appointed by the community - based on having certain experience / credentials)… later this might be fully automated using an algorithm if approved by the community after significant successful testing.
If the loan is approved then a personalised APR is offered on the loan based on a formula, which risk rates the loan (while bank base rate is used in construction build loans, there are a number of factors including; loan term & the developers experience).
If the loan terms & conditions are accepted then the full loan amount is locked in an account along with the land NFT held as collateral. Based on the build schedule the first tranche of money is delivered to the real estate developers multisig wallet… then once evidence of the first milestone has been supplied & approved by majority votes by the committee then the next tranche would be transferred. This continues until all the properties have been built (interest is calculated on a daily rate and added to the initial loan amount).
Then to repay the loan the real estate developer can mint each property as a collection x100 NFTs, which are then listed on the NFT marketplace. Once all NFTs have been sold an SPV (special purpose vehicle) is created (property title deed is transferred from real estate developer to the SPV) and the property is now owned by the NFT holders (a one for one share with the SPV). Once the loan has been repaid with the proceeds of the sale (loan amount plus interest) then any surplus is transferred to the multisig of the developer as profit.
Each property is then allocated to a pre approved letting agent and the NFT holders receive rental income based on the number of NFTs they hold (less a management fee and taxes).
Then later if the NFT holder wishes to sell the NFT they firstly get offered to the renter of the property, then the other NFT holders of that property… then finally re-listed on the NFT marketplace (at market rate - based on the oracle price feed).
NB. The last two paragraphs of the process are not part of milestone 2… they would be included in milestone 3 if we require further grant support.
Best Regards,
Richard
|
Amended deliverables & FTE
Does that mean you're not planning to give loans for land, but only for construction on land that is already owned by the developer?
Can you describe how the ownership of the land NFT is coupled with the ownership of the property title deed as registered at the HM Land Registry or similar registers?
What if the loan amount was too low and the costs exceed the expectations? Doesn't that happen quite often?
That sounds not very attractive to the NFT holder. Why not ask for any price he wants? The oracle price feed might be incorrect, as real estate prices often vary highly on a number of variables that can not all be taken into account accurately by price models. Examples include the view (maybe it's on the 3rd floor and the oracle increases the price, however, the view is blocked by a higher building), noise (maybe on one side of the building it's more noisy than on the other), black swan events, etc. Finally, I'd like to hear the benefits of using blockchain over some centralised services - after all it seems like ownership of the flats are determined by the ownership of the corresponding SPV - linking the NFT to the SPV share might be difficult and doesn't come with many benefits, especially if you KYC/AML any participant anyway. Btw, you didn't address the interest rates question from my previous comment:
|
takahser
reviewed
Oct 24, 2023
takahser
requested changes
Oct 24, 2023
|
An example would be a real estate developer who owns a plot of land with planning permission for 9 apartments.
Does that mean you're not planning to give loans for land, but only for construction on land that is already owned by the developer?
Yes
If the loan terms & conditions are accepted then the full loan amount is locked in an account along with the land NFT held as collateral.
Can you describe how the ownership of the land NFT is coupled with the ownership of the property title deed as registered at the HM Land Registry <https://www.gov.uk/government/organisations/land-registry> or similar registers?
So once KYC/KYB/AML/CreditScore checks have been completed (so we know who the loan applicant is (as 99% of the time the land will be owned a company / 1% by an individual)… then an Oracle will check land registry (and valuation) to confirm that company is correct (and there is currently no “charge" on the land)… once these things have been established and authorisation given to use land as collateral by the owners (e-sign T&Cs with DIDs), then this meta data will be part of the land loan collateral NFT along with the 1st charge on the land (so if there was a loan default the land can be allocated to another real estate developer to finish the development and repay the loan or simply sold to repay the loan).
Once the loan has been repaid with the proceeds of the sale (loan amount plus interest) then any surplus is transferred to the multisig of the developer as profit.
What if the loan amount was too low and the costs exceed the expectations? Doesn't that happen quite often?
If something happens with the project and there is a requirement to borrow additional funds to finish the development, then as long as the collateral land value allowed for that and the loan technical committee voted to accept the risks, an additional tranche of loan funds could be added to the loan… this can happen if building materials / labour costs increase considerably post application but mostly it is priced in to the build schedule. If it was voted down by the committee (because its deemed to be project mismanagement) then loan default measures would be implemented.
Then later if the NFT holder wishes to sell the NFT they firstly get offered to the renter of the property, then the other NFT holders of that property… then finally re-listed on the NFT marketplace (at market rate - based on the oracle price feed).
That sounds not very attractive to the NFT holder. Why not ask for any price he wants? The oracle price feed might be incorrect, as real estate prices often vary highly on a number of variables that can not all be taken into account accurately by price models. Examples include the view (maybe it's on the 3rd floor and the oracle increases the price, however, the view is blocked by a higher building), noise (maybe on one side of the building it's more noisy than on the other), black swan events, etc.
Sorry if this is not clear… the selling price is determined by the NFT seller (but checked against real market valuations to protect the buyer). The offer to those parties just makes for the quickest chances of a sale, as those parties have the most interest in that particular property. We would implement a DID communication method so speed of sale was maintained without each party needing to know the identity of the other.
Finally, I'd like to hear the benefits of using blockchain over some centralised services - after all it seems like ownership of the flats are determined by the ownership of the corresponding SPV - linking the NFT to the SPV share might be difficult and doesn't come with many benefits, especially if you KYC/AML any participant anyway.
Blockchain provides immutable records and less need to trust centralised parties… property fraud causes misery to investors so by recording all transactions on chain, significantly reduces the chance of fraud occurring.
Introducing NFTs offers much greater scope to redefine property ownership and utility in the future… imagine a property club dApp where the NFTs gave you rights to live or work for a specified period of time in any property that was available (within the club) throughout the world. Imagine Hotels being built and NFT holders having the choice to either take holidays or rental income. Also imagine that a village in Africa needs a school built… with our protocol people could donate to the project regardless where they live having total transparency of build and allocation to a non for profit to run. Maybe a community decides they need a homeless shelter… the protocol could provide the transparent and decentralised mechanism to initiate these at scale anywhere in the world.
The protocol we are building is way of bridging real world real estate and the digital one to enhance peoples lives.
Btw, you didn't address the interest rates question from my previous comment <#2054 (comment)>:
12-15% APR, where did you get these numbers from? The current base rate seems to be at 5.25% <https://commonslibrary.parliament.uk/economic-update-have-interest-rates-peaked/#:~:text=The%20Bank%20of%20England%20left,not%20need%20to%20increase%20further.> and the fixed-term mortgage rates are roughly between 5-6.4% <https://www.rightmove.co.uk/news/articles/property-news/current-uk-mortgage-rates/>, as per 17 Oct 2023:
You will not get high street banks advertising real estate development loans like retail mortgage loans. However, if you look at this website it gives you a guide. The thing with a real estate development loan is that the headline APR is only one aspect of the loan… you also have loan arrangement fees, broker fees, exit fees and professional fees… all these elements can add significant time to the application being approved / rejected as well as adding cost, which can mean the developer misses out on the development opportunity.
https://abcfinance.co.uk/development-finance/rates-and-fees/#:~:text=Loans%20tend%20to%20start%20at,9%25%20per%20annum%20are%20common.
By making the process transparent, simple and easy to follow and by having a route to market as a way to repay the loan, it is very attractive option to a real estate developer. While also providing a constant flow of new well vetted properties to the NFT marketplace investors.
|
|
Sorry if I’ve got this wrong but we have a team of six working on this full time so that is the total cost associated with that amount of work in the period of time it would take… when you questioned it I looked at other similar projects and they had the same amount of W3F grant with a lower FTE so I adjusted ours accordingly.
|
|
I think I understand what you mean now… in the previous milestone 1 we use ink! smart contract, so this was much easier and quicker to create and implement. However, in milestone 2 we have created custom pallets, which take much more time to construct, test and validate.
|
changes to FTE, adding supported wallets to deliverable & formatting
amalgamate deliverable 5 (loan governance) in to community loan pallet.
Updated suggestion Co-authored-by: S E R A Y A <[email protected]>
Update suggestion Co-authored-by: S E R A Y A <[email protected]>
FTE update
|
Sure - here you go…
https://github.com/w3f/Grants-Program/blob/master/applications/Xcavate.md
|
takahser
requested changes
Oct 24, 2023
There was a problem hiding this comment.
I think the easiest way forward is to:
- add "Phase 2" to the title
- change "Milestone 2" to "Milestone 1"
These changes are necessary to avoid confusion. See also my previous comment.
| @@ -0,0 +1,181 @@ | |||
| # Xcavate | |||
There was a problem hiding this comment.
Suggested change
| # Xcavate | |
| # Xcavate - Phase 2 | |
|
No problem - I’ll get this done asap… thanks for your help 👊
|
Update title and milestone number
|
@xcavate2022 can you please also update the title to include "Phase 2" or something similar? |
takahser
added
ready for review
takahser
requested changes
Oct 25, 2023
There was a problem hiding this comment.
@xcavate2022 I decided to not add my approval to this proposal. These are the reasons:
- the scope seems to be very limited - when compared with your previous grant, it seems like the main features are
- a frontend,
- a rewrite of the existing ink! contracts to a pallet and
- adding a pallet to allow for a 2ndary market.
- now, while i) is very specific to your proposal and hence the potential reusability by the community limited, I think ii) is nothing very significant and for iii) similar solutions already exist (e.g. Marketplaces in the tech stack or the NFT pallet that has extrinsics for trading). Overall, I think $30k is a bold price for that.
- I also am not convinced on the mechanism of securing the ownership of the real-world asset through an NFT.
- Furthermore, I'm not sure if blockchain is necessarily the best solution for your business case. That concern is partially due to the previous point - if there was a truly decentralised and robust way to couple the NFT to the real-world asset, I might change my opinion on that.
- Finally, I have concerns regarding your performance in the previous delivery.
That being said, I retract my points I made earlier regarding the interest rates - I understood that mortgage rates should not be mistaken with short-term bridge loans that developers typically seek for and that the rates vary highly. I still don't understand the mechanism that would give your solution a competitive advantage though, because I'd assume the developer can pledge their land as a collateral in a traditional bank-backed loan - so there'd be no difference to your solution.
|
Hi Seraya,
Many thanks for your message. Obviously it’s hugely disappointing that our application hasn’t convinced you of the need for our solution. Its funny because we’ve only recently met up with one of the team at Parity (Tom Humber) who has a project called Archisinal, which is an NFT marketplace for Architects drawings… they were looking to launch on Astar but loved our project and understood its need and they think it would be a good fit with their project, so would happily launch their smart contract on the Xcavate dApp chain.
The challenge (especially in this climate) for projects like ours is to keep our team supported and rewarded so that was the key driver behind the amount of the grant requested. While we have a number of things that we are pursuing this is a pivotal moment. We are hoping to be accepted on the Substrate Builders Program and get Seed investment so they are still within our sights. In the meantime if we revised our application to a more modest amount, would it be something you would reconsider?
Best Regards,
Richard
|
That's great news for your project! Btw, my single vote doesn't necessarily mean that the project will be rejected - other committee members can have a different opinion and potentially decide to add their approval. |
|
Thank you… Yes I totally understand. Well I’ve just been working with one of my team on the Oracles element… we are using the Acurast Pallet so that Price, Title Deed & Planning Approval are remotely checked by Oracle prior to NFTs being allowed to list (I’m not aware of any other RWA NFT marketplace having this functionality so you have to “Trust” the listing entity)… The reason this is necessary with our solution is that the buyer is buying direct from the builder of the property (not a fund or an agent which is the case with other solutions). This direct relationship makes for a much more efficient system (much quicker from build to market), which means the real estate developers can build more properties and so there is more choice for buyers and property prices are more stable (greater market equilibrium).
|
xcavate2022
changed the title
Noc2
requested changes
Oct 25, 2023
There was a problem hiding this comment.
Thanks a lot for the application and all the effort you put into this. However, the grants committee decided not to support your application. Besides the reason @takahser previously listed, we also think the grants program is no longer the best funding mechanism for this project at this stage. Please don't hesitate to let me know if you have any questions, and we wish you all the best for the project.
|
Ok - many thanks for taking the time to review our application. All the best Richard
|
10 tasks
Sign up for free
to join this conversation on GitHub.
Already have an account?
Sign in to comment
Add this suggestion to a batch that can be applied as a single commit.
This suggestion is invalid because no changes were made to the code.
Suggestions cannot be applied while the pull request is closed.
Suggestions cannot be applied while viewing a subset of changes.
Only one suggestion per line can be applied in a batch.
Add this suggestion to a batch that can be applied as a single commit.
Applying suggestions on deleted lines is not supported.
You must change the existing code in this line in order to create a valid suggestion.
Outdated suggestions cannot be applied.
This suggestion has been applied or marked resolved.
Suggestions cannot be applied from pending reviews.
Suggestions cannot be applied on multi-line comments.
Suggestions cannot be applied while the pull request is queued to merge.
Suggestion cannot be applied right now. Please check back later.
Project Abstract
Grant level
Application Checklist
project_name.md).@_______:matrix.org(change the homeserver if you use a different one)